Publications: Notes at the Margin

The Ukraine Problem: Europe Unprepared; Betting on Crude; Wood Mackenzie's Macroeconomic Fairy Tale (January 31, 2022)


This Notes at the Margin addresses three subjects. The primary focus is the Ukraine situation and Europe’s likely failure to deal with a worsening energy crisis, in circumstances where markets are already tight, should the Russians invade. Simply put, government by collegiality—that is, by the European Union—cannot address Europe’s energy problems, whether caused by regulation, Mother Nature, or war. Likewise, the International Energy Agency is probably not capable of resolving them. The region’s only hope is for the United States to respond aggressively, a wish that has been dashed often in the past. Bets on $100 oil by spring are reasonable.


Today’s second section extends our analysis of betting on high crude prices that began in last week’s report. Data from the three key crude futures markets reveal the magnitude of the speculative bet, especially in September and December. Today there are 1.2 calls (bets) on crude prices above $90 per barrel in December for every open futures contract. The gambling continues to increase, and the outstanding calls (bets) will pull crude prices up as their expiration approaches.


Last, we turn briefly to a poorly done Wood Mackenzie report on the impacts of achieving net-zero emissions by 2050. Wood Mackenzie is a consulting firm known for its oil and gas exploration expertise. Its report, titled “No Pain No Gain,” asserts that bringing net emissions of global warming gases to zero would reduce world GDP by two percent in 2050. We label the firm’s nineteen-page analysis as a “fairy tale” due to omitted details. Indeed, the company clearly is not competent to write about this topic. In contrast, a long, detailed report from McKinsey provides a professional, well-supported examination and, as appropriate for such a complicated topic, offers no definitive answers.


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